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VW plan could herald spin-off for car parts: analysts

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VW plan could herald spin-off for car parts: analysts

Volkswagen's plan to cut costs by creating a new car parts business could unlock funds for its move to electric vehicles and herald an eventual spin-off that could transform its profitability, analysts said on Wednesday.

A Volkswagen logo is seen at Serramonte Volkswagen in Colma, California, U.S., October 3, 2017. REUTERS/Stephen Lam

12 Oct 2017 12:50AM

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BERLIN: Volkswagen's plan to cut costs by creating a new car parts business could unlock funds for its move to electric vehicles and herald an eventual spin-off that could transform its profitability, analysts said on Wednesday.

Shackled by its powerful labor unions, VW makes more parts, such as transmissions, in-house at high German labor costs than most rivals like BMW and Daimler , weighing down the core brand's profitability.

Europe's largest automaker said on Wednesday it plans to bring together the manufacturing of parts, including engines and transmissions at 56 plants on five continents with a total of 80,000 staff.

Wolfsburg-based VW has been reviewing its assets and brands since announcing its electric-car plans in June 2016, and put up non-automotive assets for sale earlier this year, including motorcycle brand Ducati.

"The (components) realignment shows that structural change is happening at last," said Ferdinand Dudenhoeffer, head of the Centre of Automotive Research at the University of Duisburg-Essen.

The plan, outlined by VW last year, was confirmed by the company to have won the approval of its top executive board this summer, after a report by German business daily Handelsblatt.

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VW said it wants to integrate its components operations under a unified structure.

The new entity "will bundle these activities, organize them even more efficiently, strengthen in-house competences in specific areas, and drive forward the transition to electric cars throughout the group," the carmaker said in its statement.

One source at VW said the group may also reassign responsibilities in components manufacturing as part of the changes, but ruled out any capacity cuts. At present, car brands Audi , Porsche and Skoda all make engines and chassis parts at their own sites.

"This could be the first meaningful step toward clarifying the profitability of VW's supplier activities as well as a spin-off of the business," said Dudenhoeffer.

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"It could be a boon to VW's profitability though details remain to be seen," he said.

Carmakers in general are under pressure from investors to be more transparent about profitability and the growth prospects of specific operations as conventional auto manufacturers venture into new mobility services and electric cars.

Bringing together the tasks of components plants such as Salzgitter and Kassel would also affect the carmaker's zero-emissions push as VW plans to build electric engines at the two German sites.

Exposing the financial performance of these plants would enable VW to streamline resources internally to help meet the growing funding needs tied to its electric-car program, London-based J.P. Morgan analyst Jose Asumendi said in a note published on Wednesday.

"We believe this is a key game changer for the VW equity story," Asumendi said, adding the move entails a growing likelihood that VW will spin off or streamline component businesses in the medium term.

VW declined comment while a second source at the carmaker denied any plans to spin off or sell components activities.

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